Debt Relief Orders (DROs) and your credit rating

What is a debt relief order?

A debt relief order (DRO) is a way to clear your debts. It’s usually suitable for people with a relatively low level of debt, and relatively few assets (i.e. belongings of value, such as a car or house). If a DRO is right for you, it may be a cheaper and simpler alternative to bankruptcy.

What does a DRO mean?

If you’re successful in your application, a DRO means you won’t have to repay certain debts for a set period. At the end of the DRO period (usually 12 months), any debts included within the DRO will be written off (discharged) so you won’t have to pay them at all.

Who can apply for a DRO?

To be eligible you must meet the following criteria:

your debts are £20,000 or less

you’ve not had a DRO in the last 6 years

you’ve lived or worked in England or Wales in the last 3 years

you’re not a homeowner

you have limited spare income (less than £50 to spend each month, after tax, national insurance and household expenses)

your assets are worth no more than £1000 total

If you’re in the middle of bankruptcy proceedings, an IVA, or any other formal insolvency procedure, you won’t be able to get a DRO. However, if one of your creditors has put in a court request to make you bankrupt, you can ask them for permission to apply for a DRO instead.

How do I apply for a DRO?

To apply for a DRO you will need to find an authorised debt adviser, also called an ‘approved intermediary’ – you can’t apply by yourself. It costs £90 to apply for a DRO, but there are debt charities that may be able to help you pay this.

Your debt adviser will help you complete the DRO application form and explain the process to you. Then they’ll check the details of your personal circumstances to ensure you meet the qualifying criteria. Once they’ve validated your application, the DRO can be applied for within a matter of hours.

Your DRO application may be refused if you’ve done any of the following in the two years before you apply:

given away any of your belongings

sold any belongings for less than their value

made paying back one particular debt a priority, for example; paying off a debt owed to a relative but not paying your other debts

If any of the above applies to you, you must declare it on your application.

How long does a DRO take to process?

Once a DRO application is made, it’ll take 12 months to process. During this time, you’ll be in a ‘moratorium’ period – this means you’ll have to stick to certain restrictions, but it also means that lenders included under the DRO shouldn’t chase you about your debts during this time.

What can be included in a DRO?

‘Qualifying debts’ that can go into a DRO include:

credit cards, overdrafts and loans

hire purchase or conditional sale agreements

buy now pay later agreements

business debts

benefits overpayments

arrears on rent, utility bills, telephone bills, council tax and income tax

How long does a DRO stay on your credit report?

A DRO will impact your credit record for a period of six years. This is because your credit report looks back over the past six years of your borrowing history. A DRO will therefore impact future credit applications. When you apply for credit, companies look at your credit information to decide whether to lend to you. Your free Experian Credit Score will give you an idea of how companies see you, and how likely they are to approve your applications.

If you have a DRO and wish to apply for credit of £500 or more, you must inform the lender of your DRO.

Can I get a DRO updated or removed from my report?

You can’t get a DRO removed from your report. However, you can check your report to make sure your DRO has been updated as ‘discharged’ after the DRO period (usually 12 months) is up. If it hasn’t, please tell us. You can also check to make sure that all the accounts that were included in your DRO are marked as satisfied or partially settled. If not, you should contact the relevant company. If you need help, ask us to raise a query with them on your behalf.

Your credit rating is likely to improve in the short term once the DRO and any individual defaults are marked as cleared, and in the medium term as they get older. Some companies will rate your most recent credit history more highly than events that took place several years ago. However, some companies may also have a policy whereby they refuse applicants that have a default on their credit report regardless of how old it is and whether it has been paid or not.

Additionally, if the reason for you defaulting was the result of something out of your control – such as losing your job or a serious illness – you might benefit from explaining this on your credit report. Simply send us a statement of up to 200 words describing any relevant circumstances and we’ll add this to your Experian Credit Report. Known as a notice of correction, companies will see this when they check your report in the future and should factor it in to their decision. Please note we can’t add a statement that is frivolous, factually incorrect or defamatory.

How can I improve my score after a DRO?

This will take time and patience however, it can be done. Reviewing your credit report regularly can help you keep track of your finances better. Making sure it provides an accurate and up-to-date picture of your credit history will ensure you’re painting the right picture. If you do find anything that needs correcting, contact the relevant lender and ask for an amendment – Experian can also raise any queries on your behalf. It’s worth checking the smallest details are correct like the way your name and address is recorded, as this can have a significant impact.

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